Consider three bonds with a 6.70% coupon rate, all paying annual coupon payments, and all selling at
Question:
Consider three bonds with a 6.70% coupon rate, all paying annual coupon payments, and all selling at face value. The maturity of the short-term bond is 4 years, the maturity of the medium-term bond is 8 years and the maturity of the long-term bond is 30 years.
A. What will be the price of a 4-year bond if its yield rises to 7.70%? (Do not round up intermediate calculations. Round your answers to 2 decimal places.)
B. What will be the price of the 8-year bond if the yield rises to 7.70%? (Do not round up intermediate calculations. Round your answers to 2 decimal places.)
C. What will be the price of a 30-year bond if its yield rises to 7.70%? (Do not round up intermediate calculations. Round your answers to 2 decimal places.)
D. What will be the price of a 4-year bond if its yield drops to 5.70%? (Do not round up intermediate calculations. Round your answers to 2 decimal places.)
to. What will be the price of an 8-year bond if its yield drops to 5.70%? (Do not round up intermediate calculations. Round your answers to 2 decimal places.)
F. What will be the price of a 30-year bond if its yield drops to 5.70%? (Do not round up intermediate calculations. Round your answers to 2 decimal places.)
G. When you compare your answers to (a), (b) and (c), are long-term bonds more or less affected by an increase in interest rates than short-term bonds? More affected Less affected
H. When you compare your answers to (d), (e) and (f), are long-term bonds more or less affected by the fall in interest rates than short-term bonds? More affected Less affected
Introduction to Operations Research
ISBN: 978-1259162985
10th edition
Authors: Frederick S. Hillier, Gerald J. Lieberman